UPDATE 3-U.S. Congress ends bitter tax battle with bill passage

* Scores of House Republicans abandon Boehner in vote

* Most Senate Republicans vote against payroll tax cut

* Economists see measure boosting economy

By Richard Cowan and Donna Smith

WASHINGTON, Feb 17 The U.S. Congress ended
a three-month battle on Friday by passing legislation to extend
a tax cut for 160 million workers, a boon for both the economy
and Democratic President Barack Obama in this election year.

The outcome for Republicans and House of Representatives
Speaker John Boehner is far more murky. While Boehner has put
behind him a bill that has been nothing but political heartache,
nearly 40 percent of his rank-and-file voted against the measure
he advanced by compromising on a core Republican cause - deficit
reduction.

In quick bipartisan votes on the bill that also extends
long-term jobless benefits, the House passed the measure
293-132, followed by a 60-36 vote in the Democratic-led Senate.
A significant number - 91 of the 242 House Republicans - broke
ranks with Boehner. Only 14 of 47 Senate Republicans voted yes,
but the issue was not seen as a test of leadership of Senate
Minority Leader Mitch McConnell, who voted for the plan.

The bill now goes to Obama, who is expected to sign it into
law promptly. Unlike previous tax and spending battles over the
last year when lawmakers nearly breached their deadlines,
Congress wrapped up its work with time to spare. It had until
Feb. 29. when the tax cut and jobless benefits were set to end.

While adding $100 billion to the already high U.S. deficit,
the bill aims to further stimulate the economy. A sustained
recovery would help Obama's November re-election bid.

Had the payroll tax cut and long-term jobless benefits been
allowed to expire on Feb. 29, that would have shaved a 0.7
percent point off of economic growth this year, according to
Moody's Analytics chief economist Mark Zandi.

The votes capped a fever-pitch debate in Congress that began
in earnest in November. Democrats argued the legislation would
help spur the economy and provide needed cash to struggling
middle class families and workers, and to those who have been
unable to find jobs amid an 8.3 percent unemployment rate.

Republicans staked out a series of changing positions as
they questioned the effectiveness of the tax cut. But their
leaders ultimately saw that blocking the legislation would hurt
them in November's congressional and presidential elections,
especially as they were protecting tax cuts for the wealthy.

As a result, Republican leaders threw their weight behind
the initiative to get it enacted and off the political agenda.

After a full year of pushing controversial measures to
reduce government budget deficits that have been topping $1
trillion annually, many Republicans on Friday found themselves
voting for a measure that will add to the deficit.

Boehner's concession of not demanding spending offsets to
pay for the extension particularly rankled members of the
fiscally conservative Tea Party Caucus in the House. While 24 of
them voted "yes" on the bill, 36 cast "no" votes.

"We are taking money away from the Social Security Trust
Fund and we're substituting an IOU that may or may not ever be
repaid," said Representative Joe Barton, a member of the Tea
Party Caucus who opposed the bill.

RARE BIPARTISANSHIP

But Senate Majority Leader Harry Reid said: "In the end,
both sides compromised for the good of our country, which is
exactly how the American people expect their elected leaders to
work."

Any bipartisan spirit might not last long, though. Democrats
and Republicans are expected to return to bickering over a
highway funding bill and next year's budget.

Without the legislation passed on Friday, the 4.2 percent
tax that workers pay to fund the Social Security retirement
program would have snapped back to its normal 6.2 percent on
March 1. Now, an average working family will have $1,000 in
extra cash this year, money Obama hopes they will spend to help
grow the economy.

Also, 4 million long-term unemployed people will continue to
get benefit checks that help them buy groceries, gasoline and
other basic goods.

Republicans won some reforms to the unemployment insurance
program - mainly a cut in the maximum number of jobless benefit
checks, to 73 weeks by year's end from the current 99 weeks.

According to a Goldman Sachs analysis, the scaling down of
unemployment benefits will be more gradual than initially
thought, "resulting in a slightly less drag on growth" in the
second quarter of this year, but a somewhat greater impact at
the end of 2012.

The bill also averts through 2012 a 27 percent cut in
payments to doctors treating elderly Medicare patients.

The communications industry secured access to more public
airwaves, as selling off these government-owned "spectrum"
rights was a major revenue raising tool to help offset the cost
of the jobless benefits.

NEW YORK, Dec 9 U.S. Treasury debt yields
touched session lows early Friday in step with German yields in
the wake of a Reuters report on the European Central Bank has
rejected request from Italy's Monte Paschi for more time to
raise cash.

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